Smaller Hospital States Case for Survival as Full-Service Facility

St. Michael’s Medical Center of Newark slams ‘anti-competition’ consultant report that calls for consolidation and restructuring

Saint Michael's Medical Center in Newark.

Saint Michael’s Medical Center and the consulting firm that recently evaluated five Newark-area hospitals for the state couldn’t be further apart on what should be done to best address the region’s future healthcare needs.

Navigant Consulting recently recommended converting Saint Michael’s and two other nearby hospitals into outpatient-focused ambulatory and emergency care centers, while greatly expanding Newark’s University Hospital into a regional medical center.

But officials at St. Michael’s see their hospital playing a vital role in offering competition – both in terms of cost and quality of care -- with larger hospital networks like Barnabas Health, which operates Clara Maass Medical Center in Bellesville and Newark Beth Israel Hospital, and also has a management partnership with the state-owned University Hospital.

The differences were underscored yesterday when Saint Michael’s released its official response to the Navigant report, in a report by David Ettinger, a Michigan-based lawyer who specializes in antitrust law.

Beginning by asserting that Navigant’s recommendations “should be completely rejected,” Ettinger said various studies have found that hospitals can increase their bargaining power with insurers and tend to raise their prices when their competitors close their doors.

Ettinger described the Navigant report as “anti-competition” and “pro-monopoly,” and he said it isn’t true that healthcare quality would improve in a less-competitive Newark hospital market.

He said added costs for Newark patients and employers could be as high as $180 million should Saint Michael’s stop operating as a full-service hospital.

He said Barnabas Health already holds a dominant position, with a market share above standards set by the Federal Trade Commission and Department of Justice that presume that a hospital can charge prices above competitive levels.

Saint Michael’s charges to Medicare are the lowest of any Newark-area hospital by a wide margin and the hospital is Barnabas Health’s only Newark-area competitor in some medical specialties, he added.

Ettinger also questioned Navigant’s projections for future inpatient healthcare needs and the impact on each hospital’s finances, noting that several major healthcare projections have been wrong in the past.

Ettinger touted the track record of Prime Healthcare of California, the for-profit chain that’s trying to buy Saint Michael’s. The state’s extended review of the sale has raised concerns among Saint Michael’s supporters that state officials are purposely putting off a decision.

The sale to Prime Healthcare would allow the state to pay off $50 million of the $232 million in outstanding bonds that Saint Michael’s owes. But the state would still be on the hook for the remaining debt.

Ettinger’s report said Navigant’s recommendations would “provide a huge windfall to Barnabas Health and will only increase the obligations of New Jersey taxpayers.”

Saint Michael’s President CEO David A. Ricci said he’d like to see the state speed up its decision on the sale.

“We have answered all of the questions that have been forwarded to us,” from the attorney general and state Department of Health, Ricci said.

State Department of Health spokeswoman Donna Leusner said in an email that there’s an ongoing exchange pertaining to the application.

“Sometimes when an applicant provides information, that generates additional questions,” she said.

Barnabas Health spokeswoman Ellen Greene didn’t directly respond to the report in a statement, but said that the health system is focused on providing the highest quality healthcare with the greatest access to the community it serves.

“As healthcare delivery continues to transform in line with President Obama’s national vision of healthier communities, we look forward to continuing our mission of promoting wellness and caring for the sick because we believe that life is better healthy,” she said.

David Knowlton, president and CEO of the New Jersey Health Care Quality Institute, said the Navigant report addresses a longstanding need for a rational approach to healthcare planning in the state.

He added that the state still must consider the effects of Saint Michael’s outstanding bonds. If the state takes on that debt, it would present a fiscal challenge, but if it were to default on the debt, it could raise interest rates for hospital bonds throughout the state.

“That’s the real rub here: What are the implications in real time on all of the other business interests in the area, and that includes the state of New Jersey,” said Knowlton, a former deputy health commissioner.

Knowlton expressed skepticism about Saint Michael’s argument that increasing Barnabas’ market power would lower healthcare quality, saying financially strong hospitals are usually in a position to improve quality.

He also noted that in the most recent hospital safety scores from the Leapfrog Group, Saint Michael’s had the worst Newark-area score, with a “D” grade. Clara Maass had an “A,” Newark Beth Israel a “B,” and University Hospital and East Orange General Hospital both had grades of “C.”

State Health Commissioner Mary E. O’Dowd said during a Senate Budget and Appropriations Committee hearing on Tuesday that the Navigant study offers a way to “transform our healthcare system to better meet the needs of our community.”

Based on discussions, she said representatives of “all but one” of the Newark-area hospitals said they found value in the report.

While the commissioner didn’t name the holdout, the identity of that hospital was apparent yesterday.